The BIAL deal, which leaves only 10 per cent stake with GVK, was an easier one because the Kempe Gowda International Airport at Bengaluru was the only profit-making airport under its airport vertical, GVK Airport Developers.
During financial year 2015-16, the GVK group was trying to raise up to Rs 4,000 crore for the purpose of bringing down the debt and to avert the impending loan defaults. It could not achieve any breakthrough until its Canadian partner, Fairfax, came forward to buy the stake in BIAL for $321 million, meeting the half-way mark of its fund requirement for the year.
The company said the transaction would reduce the debt obligation by Rs 2,300 crore, including interest cost by Rs 300 crore a year, while it was having consolidated debt of Rs 25,000 crore.
As the move came late, 2015-16 provided no marked change in direction for the company, as it continued to make losses for the fourth year in a row. Consolidated interest costs rose 53.7 per cent to Rs 2,149.36 crore compared to Rs 1,398.46 crore the previous year (interest costs had grown 55 per cent in 2014-15). Despite having a 36.6 per cent top line growth thanks to the commissioning of Alakananda Hydro Power project and a better performance by its airport business, the interest costs alone had become a little over 50 per cent of the company’s topline — interest cost as a percentage of PBIDT (profit before interest, depreciation and tax) stood at 130 per cent.
According to a Credit Suisse report, about 60 per cent of GVK debt is under high stress, next only to Lanco, GMR and Jaypee.
“While it’s public knowledge that we are actively looking at various options for reducing our debt, we regret that we will not be able to elaborate or share any further details on the same, as it is still work in progress,” a group spokesman said when asked as to what further steps the company had been taking.
In 2015-16, the net adjusted profit of BIAL stood at Rs 438.23 crore while the Mumbai airport recorded a net loss of Rs 85.16 crore, though far lower compared to a net loss of Rs 319 crore in the previous year. In addition, the company is developing a new airport and managing the commercial operations of another in Indonesia.
The company was required to raise Rs 4,000 crore as it had a Rs 5,500 crore debt due around this time. Also, the group’s current liabilities exceeded current assets by Rs 4,884.14 crore as on March 31, on the back of accumulated/incurred losses. The company had admitted in its annual filings for 2015-16 that during the year it had delayed payment of loans and interest and certain loan accounts had been classified as non-performing by the banks.
However, the revenue mix has seen some change during 2015-16 with a higher contribution from the power division, though the airport business still accounts for 68 per cent of the total income. On the power and coal front, the issues of cost overruns and stalled coal projects continue to bleed the company. While the 330 Mw Alakananda hydro project had seen 75 per cent cost overrun, the 540-Mw coal-based capacity, under construction, had already seen 55 per cent increase in cost last year, according to the Credit Suisse report.
In his recent report Tim Buckley, director of Energy Finance Studies Australia , pointed out at a much bigger debt problem for the company in connection with its Australian coal mine investments: “Given the run of losses, the book value of shareholders equity continued to shrink, down 30 per cent year on year to just $202 million. The company’s net debt is 17 times it's equity (networth), and that is before any impairment of the highly financially leveraged and stranded Alpha coal proposal in Queensland. The annual results of GVK Power make no mention of this off balance sheet $ 1 billion plus investment that is entirely debt funded," he said.
Into its sixth year, the Carmichael project in Australia has made no measurable progress, and financial close remains elusive and distant while the coal market is as structurally challenged as is currently evident, according to Tim.
"With India's Energy Minister Piyush Goyal remaining committed to the target for India to aggressively cut thermal coal imports, any strategic merit of this (coal mining in Australia) proposal for India has lapsed. Consistent with this, NTPC reiterated its plans to cease thermal coal imports in the current 2016/17 year," he added.